June 6 (Bloomberg) -- GM was for years a place where
employees agreed to fix problems but never did, feared alerting
superiors to car-safety concerns and avoided taking notes in
meetings lest they be held liable for product shortcomings.

Those are some of the findings buried within the 325-page
investigative report by General Motors Co.’s outside lawyer
Anton Valukas, who led a three-month probe seeking to answer why
it took the largest U.S. automaker more than a decade to recall
2.59 million vehicles with potentially fatal flaws. The report
blamed a lack of urgency in the engineering and legal
departments coupled with fundamental failures to understand how
the company’s cars worked, even as it didn’t reveal any
conspiracy to cover up facts. Chief Executive Officer Mary Barra
herself was held blameless, and she dismissed 15 employees for
their roles along with punishing five more.

“This should have never happened,” Barra told about 1,000
employees yesterday at GM’s technical center in suburban
Detroit. “It is simply unacceptable.”

The report underscores the enormity of Barra’s challenge as
she seeks to change the automaker’s culture after the biggest
legal and public-relations challenge since its government-backed
bankruptcy in 2009. Congress and the Justice Department continue
to investigate GM, and some critics asked whether the Valukas
report -- commissioned and paid for by the company -- is
sufficiently impartial because it spared the top leadership.

Lawmakers in the U.S. House and Senate said yesterday they
planned to call another round of hearings.

‘GM Nod’

“I won’t be letting GM leadership, or federal regulators,
escape accountability for these tragedies,” said Senator Claire
McCaskill, who presided over an April 2 hearing in which Barra
declined to answer many specific questions about what happened
because the Valukas report wasn’t complete. “The families of
those affected deserve no less.”

Barra, who ran GM’s human resources and product development
departments before becoming the company’s first female CEO,
outlined in a town hall-style meeting with employees aspects of
GM’s culture that contributed to its inability to address
product flaws. She described in the report what’s known as the
“GM nod,” the phenomenon when everyone in a company meeting
agreed to take a proposed action while leaving without any
intention to follow through.

“It is an idiomatic recognition of a culture” that “does
not move issues forward quickly, as the story of the Cobalt
demonstrates,” the report said.

Defective Switch

GM’s crisis erupted in February with the recall of some
vehicles no longer sold, including the Chevrolet Cobalt, that
have a defective ignition switch that could be jarred into the
“accessory” position, disabling power steering and preventing
air bags from deploying.

The National Highway Traffic Safety Administration has
already fined GM $35 million, the maximum allowed, after finding
systemic problems throughout the organization in dealing with
the recall. GM has already agreed with NHTSA to wide-ranging
changes to how it reviews safety issues and decides on recalls.

The GM nod wasn’t the only in-house affectation. The report
also mentioned the “GM Salute,” another phenomenon within the
company when employees would sit with their arms crossed,
pointing toward others, “indicating that the responsibility
belongs to someone else, not me.”

Said the findings: “It is this same cabining of
responsibility, the sense that someone else is responsible, that
permeated the Cobalt investigation for years.”

Executives Ousted

GM’s investigation confirmed Barra’s previous claims that
she was previously unaware of the flawed switch. It also cleared
GM’s top lawyer, Michael Millikin. Ray DeGiorgio, the engineer
in charge of the flawed part, and Gary Altman, a program
engineering manager, were ousted, said a person familiar with
the matter.

Mike Robinson, vice president of sustainability and global
regulatory affairs, was the highest-ranking GM executive
dismissed by the automaker, said another person familiar with
the matter. He left along with Bill Kemp, GM’s top lawyer on
recalls, Lawrence Buonomo, the administrative head of in-house
litigation, Gay Kent, director of vehicle safety and crash-worthiness, and Carmen Benavides, director of safety, according
to people.

Barra drew praise for candidly delivering the results that
painted GM as a company hobbled by a pattern of incompetence and
neglect.

‘Brutally Honest’

“She was brutally honest in acknowledging GM failed, plain
and simple,” said Michelle Krebs, senior analyst for car buying
website AutoTrader.com. “Her talk was a rallying cry to the
troops that it is absolutely imperative to do better. It also
sets the tone for a culture change.”

It wasn’t all rave reviews for Barra’s performance. The CEO
didn’t offer enough specifics on why the delay in the recall and
the fixing of the problem happened or on reassuring consumers
that there aren’t more defects lurking in cars from that era,
said David Johnson, CEO of Strategic Vision LLC, a public-relations firm in Atlanta.

“When you are doing a press conference like that, you want
to put a major portion of the story to bed,” Johnson said.
“This instead raises more questions than answers them.”

One area that received lots of attention was whether GM
would increase its count of deaths linked to the faulty part. So
far, the company has said 13. Others, such as Clarence Ditlow,
executive director of the Center for Auto Safety, a Washington-based advocacy group, have suggested the number is much higher.

Victim Compensation

The total will come into play as GM prepares to compensate
victims. Barra announced a compensation program for victims and
their families to be administered by Kenneth Feinberg, who ran
similar funds for victims of the Sept. 11 terrorist attacks and
the 2010 BP oil spill. GM expects the program to cover the
almost 2.6 million vehicles recalled with a potentially
defective ignition switch.

After GM side-stepped questions from reporters in the
morning about whether the death total would rise, in an
afternoon conference call with analysts, Barra reiterated the
company’s tally of 13 and added: “We are not saying the number
of eligible parties will be limited to 13. Mr. Feinberg will
review the facts and he alone will determine the final number of
eligible individuals. We will make public the number of
fatalities and serious physical injuries as ultimately
determined by Mr. Feinberg.”

The program plans to begin accepting claims on Aug. 1, the
company said.

‘Deeply Troubling’

A quick resolution will allow Barra and her team to
capitalize on rebounding profits and the strongest industrywide
sales since the collapse of Lehman Brothers. GM rose 1.6 percent
to $36.55 at the close in New York. The shares have declined 11
percent this year.

Valukas’s team interviewed more than 230 witnesses and
collected more than 41 million documents. The volume of data was
estimated at 23 terabytes, the report said.

The report found that GM selected a switch that was below
the company’s specification and that subsequent engineers tasked
with fixing the problem didn’t understand the most fundamental
consequences of the failure, specifically that when the switch
turned off, the air bags did, too. It also details numerous
missed opportunities over the years to address the issue.

“From beginning to end, the story of the Cobalt is one of
numerous failures leading to tragic results for many,” the
Valukas report said. “Throughout the entire 11-year odyssey,
there was no demonstrated sense of urgency, right to the very
end. The officials overseeing the potential fixes and
investigations did not set timetables, and did not demand
action.”

December Delay

The report even noted that in December of last year, GM’s
recall committee deferred a decision to recall vehicles for six
more weeks in order to gather more information “in part because
the presentation provided to them failed to alert them to
fatalities.”

Outside attorneys warned the automaker as early as 2011
that failing to recall Cobalts could become a large liability,
the report said.

Barra said it was “enormously painful to have our
shortcomings laid out so vividly” in the Valukas report.
Senator Richard Blumenthal, however, called Valukas’s findings
“the best report money can buy” and said it “absolves upper
management, denies deliberate wrongdoing and dismisses corporate
culpability.”

Lance Cooper, a lawyer for crash victims, said the report
can help draw out more details in civil cases.

“It was disappointing that the emphasis in the remarks
was, this was a case of incompetence and neglect, this was
negligence on the part of company employees, but then
highlighting the fact that she says there was no evidence of a
trade-off in safety and cost.”

Unusual Moves

The Valukas report couldn’t rule out the effect of the
company’s cost-cutting in early 2000s as the automaker headed
toward eventual bankruptcy. While the investigation found no
evidence that any employee made an “explicit trade-off between
safety and cost,” the investigators couldn’t conclude that the
atmosphere of cost cutting didn’t play a role.

“When belts are tightened, most functions are impacted in
some way and we cannot assume that safety was immune,” the
report said.

DeGiorgio, for example, held a position that was given
added responsibilities to decrease engineering headcount, the
report said.

“Witnesses stated that the reduction in force created a
difficult environment in which people were overworked and the
quality of work suffered.”

Barra noted throughout the day that the report didn’t find
evidence that employees made a trade-off between cost and
safety.

Crisis History

In February, GM recalled 778,562 Chevrolet Cobalt and
Pontiac G5 sedans in North America. GM subsequently expanded its
recalls to the Saturn Ion and other models, covering about 1.6
million small cars from model years 2003 to 2007 and about a
million from 2008 to 2011 that were assembled with a better
switch that could’ve been replaced with faulty ones. The company
had linked 13 deaths and 47 crashes to the issue as recently as
May 24. The Valukas report increased the crash total to 54.

The recalls came less than a year after GM settled a
wrongful-death lawsuit by Cooper on behalf of the family of 29-year-old Brooke Melton, who died in 2010 when her 2005 Cobalt
lost power in a crash linked to the defective switch. The
lawsuit revealed that the faulty part had been changed at some
point without the part number being changed.

Switch Change

Records released in April by the House panel investigating
GM show that DeGiorgio signed off on changing the ignition
switch in 2006 and didn’t change its part number, effectively
hiding the change and making it harder for future engineers to
pinpoint the problem.

“To this day, in informal interviews and under oath,
DeGiorgio claims not to remember authorizing the change to the
ignition switch or his decision, at the same time, not to change
the switch’s part number,” the report said. “DeGiorgio’s
deliberate decision not to change the part number prevented
investigators for years from learning what had actually taken
place.”

While DeGiorgio hasn’t publicly commented, the Valukas
report found an e-mail of his dating back to 2002 as he
struggled with the faulty part. He signed off as “Ray (tired of
the switch from Hell) DeGiorgio.”

Defending Car

The Valukas investigation found that GM lawyer Kemp had
worked to blunt a report of an upcoming Cleveland Plain Dealer
story in 2005 about the Chevrolet Cobalt stalling, suggesting
they give the columnist a videotape demonstrating the remoteness
of the risk of it occurring. Another lawyer responded that she
wasn’t optimistic they could come up with something compelling.

“We can’t stand hearing, after the article is published,
that we didn’t do enough to defend a brand new launch,” Kemp
wrote in an e-mail timed 5:18 a.m. on June 23, 2005.

The investigation also found that former CEO Rick Wagoner
may have viewed a presentation that included a description of
stalling issues with the Cobalt about three weeks before he was
ousted by President Barack Obama’s automotive task force. The
slide Wagoner may have seen focused exclusively on warranty
costs and didn’t characterize the matter as a safety issue, the
report said.

GM, which has already announced about $1.7 billion in
charges this year tied to recalls, yesterday said it may see
further related costs this quarter. The charges, which could be
material, will be “unknown until we have completed our work,”
according to slides posted on the automaker’s website.